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Single Tenant Triple Net Lease properties offer estimated starting yields of 6-8% but with lower income growth potential. Meanwhile, diversified core real estate starts at 5-7% yields but delivers 2-5% annual income growth. Understanding this trade-off is critical for building a balanced real estate portfolio.
Our latest analysis identifies the key benefits and risks of single tenant triple net lease vs. diversified core real estate allocations, and how these strategies complement each other.
Key takeaways:
- Triple net lease contracts are not exclusive to single tenant properties, but are common across commercial real estate. Investors should consider the relative benefits and risks of single tenant “triple net lease properties” vs. having multiple “triple net lease tenants” in a core real estate portfolio.
- Single Tenant Net Lease (NL) properties have historically offered higher starting yields, but lower income growth and property price appreciation. These strategies can be helpful compliments to core real estate when broad property prices are contracting.
- Diversified core real estate has historically produced higher income growth and captured more upside during a real estate growth cycle.
- Stable property values in recent quarters as well as historically low numbers of properties under construction may point to the start of a new cycle in property price appreciation.
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This material, along with the views and opinions expressed within, are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market, economic or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass.
Important information on risk
Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Certain products and services may not be available to all entities or persons. There is no guarantee that investment objectives will be achieved.
Real estate investments are subject to various risks, including fluctuations in property values, higher expenses or lower income than expected, and potential environmental problems and liability. Please consider all risks carefully prior to investing in any particular strategy. The portfolio’s concentration in the real estate sector makes it subject to greater risk and volatility than other portfolios that are more diversified and its value may be substantially affected by economic events in the real estate industry. International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments.
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